On February 3, the U.S. Environmental Protection Agency released its final rule to implement the Renewable Fuels Standard, known as RFSII. This long-awaited rule has been the subject of considerable controversy, largely due to the analysis that EPA has performed of the lifecycle greenhouse gas emissions from ethanol and petroleum.

Under the Energy Independence and Security Act of 2007, which authorized the program, corn ethanol either needs to be “grandfathered” in to the program from plants that already exist or are under construction, or it needs have 20 percent fewer greenhouse gas emissions than petroleum.

The controversy has centered on so-called “indirect effects” – greenhouse gas emissions that in theory can be related to the production of ethanol and/or petroleum, beyond the emissions associated directly with the production and combustion processes. In the case of biofuels, a group of anti-ethanol activists led by former Environmental Defense Fund lawyer Tim Searchinger have promoted the notion that increasing biofuels use in the U.S. causes farmers in developing countries to clear forests to plant more corn. Unfortunately for Mr. Searchinger, the on-the-ground data from the tropics suggests that as biofuels use in the U.S. is increasing, land clearing rates in developing countries are declining.

In its proposed rule last May, EPA estimated that ethanol was roughly 18 percent better than petroleum. The new rule reduces the indirect emissions penalty by about half, but adds new greenhouse gas emission penalties to ethanol from fertilizer use. The net result is that the new RFSII rule states that ethanol produced using natural gas to power ethanol plants is 21 percent better than petroleum, so it all qualifies for the program. EPA declined to examine indirect emissions from petroleum, despite repeated requests from the biofuels industry to do so.

With respect to cellulosic ethanol, EPA was forced to reduce the RFSII 2010 program requirement from 100 million gallons, which was set in the law, to 6 million gallons. The recession has taken a serious toll on the entire ethanol industry, but the cellulosic industry has taken a particularly heavily hit. The difficulty in obtaining capital to build commercial scale projects has set back the cellulosic ethanol industry considerably, slowing the anticipated growth in production.

While there is a strong feeling throughout the industry that biofuels have been treated very unfairly by EPA in its greenhouse gas emissions analysis, at least we now know the federal RFSII rules of the road.